Edited version of private advice

Authorisation Number: 1052069500143

Date of advice: 13 January 2023

Ruling

Subject: Medicare levy

Question 1

Are you required to pay part Medicare Levy (on behalf of your child) from the date they turn twenty-one years of age?

Answer

No.

Question 2

Are you required to pay the Medicare Levy in part or full for your spouse from the date your child turns twenty-one years of age?

Answer

No.

Question 3

Are you required to pay part Medicare Levy (on behalf of your child) from 1 July 2021 until the day before they turn twenty-one years of age?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a member of the Royal Australian Air Force and are exempt from paying the Medicare Levy.

Your spouse has a Veteran's Affairs Repatriation Health Card (Gold Card) and is exempt from paying the Medicare Levy.

Your child lives in your family home with you and your spouse. They turned twenty-one years of age recently.

Their taxable income and adjusted taxable income for the relevant income year was $XX,XXX.XX

They were not receiving full time education during the relevant income year.

You claimed a half Medicare Levy exemption in your income tax return for the income year ending 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 251R

Income Tax Assessment Act 1936 section 251S

Income Tax Assessment Act 1936 section 251T

Income Tax Assessment Act 1936 section 251U

Reasons for decision

Question 1

Summary

You are required to pay half Medicare Levy on your child's behalf until the day before their twenty-first birthday.

Detailed reasoning

Pursuant to section 251S of the Income Tax Assessment Act 1936 (ITAA 1936), the Medicare Levy is payable by an individual who is a resident of Australia at any time during the income year, based on their taxable income.

Prescribed persons

Section 251T of the ITAA 1936 provides an exemption from the Medicare levy for persons who meet the definition of a prescribed person. Prescribed persons are listed in section 251U of the ITAA 1936 and includes, but is not limited to, the following categories of persons:

(a)         the person was entitled to free medical treatment during the whole of that period in respect of every incapacity, disease or disabling condition because the person was a member of the Defence Force or was a relative of, or was otherwise associated with, a member of the Defence Force; or

(b)         the person was entitled under the Veterans' Entitlements Act 1986, the Military Rehabilitation and Compensation Act 2004, the Australian Participants in British Nuclear Tests and British Commonwealth Occupation Force (Treatment) Act 2006 or the Treatment Benefits (Special Access) Act 2019 to free medical treatment during the whole of that period in respect of every incapacity, disease or disabling condition

The prescribed person status is conditional on the person's dependants also being prescribed persons. In this regard, subsection 251U(2) of the ITAA 1936 provides:

A person shall not be taken to have been a prescribed person, for the purposes of this Part and of any Act imposing Medicare levy, during a particular period unless every person who was a dependant of the first-mentioned person during that period is to be taken, or but for this subsection would be taken, to have been a prescribed person, for the purposes of this Part and of any Act imposing Medicare levy, during that period.

Further, under subsection 251U(3) of the ITAA 1936, if a prescribed person is not completely exempt from the levy in accordance with section 251U of the ITAA 1936, then that prescribed person will be required to pay half the levy.

Taxation Ruling 93/35 Income tax: Medicare levy payable by persons entitled to full free medical treatment: dependants for Medicare levy purposes (TR 93/35), clarifies the circumstances in which some persons, who would normally be exempt from the Medicare levy, are required to pay half the levy.

Paragraph 7 of TR 93/95 provides:

If a prescribed person has a spouse or one or more dependent children who are not prescribed persons as described in paragraph 3 of this Ruling, then that prescribed person is liable for payment of one half of the levy that would have been payable by a non-exempt person: subsection 251U(3). A partial levy is imposed in these circumstances because the spouse or dependants are eligible for benefits under the Medicare scheme. The spouse and dependants may not be in receipt of income (in excess of the relevant threshold) and, had full exemption from the levy been granted, there would not have been any contribution made towards the cost of Medicare for persons who are entitled to benefit under it and who are not entitled to exemption from the levy.

The categories of persons who are considered dependants for the purpose of the Medicare levy are outlined in paragraph 9 to 13 of the TR 93/35 and relevantly includes, but is not limited to, a spouse, a de facto partner, a child aged under 21 and a child aged 21 to 24 who is a full-time student and has a net income of less than $1,786.

Further, paragraph 8 of the TR 93/95 explains that where both the taxpayer and their spouse are prescribed persons, a dependent child may be treated as a dependant of only one spouse. Only that spouse will then be required to pay half of the levy and the spouse will be exempt from paying the levy.

In these cases, a 'family agreement' must be entered into on or before the date of lodgement of the return of income of the spouse claiming the exemption, or within such further time as the Commissioner allows.

The agreement must state that, for levy purposes, the child is not to be treated as a dependant of the person claiming the exemption and is to be treated as a dependant of the other spouse. The document evidencing the agreement must be kept for a period of 5 years commencing on the date of lodgment of the return of income of the spouse claiming the exemption.

Question 2

Summary

From the time your child turns twenty-one years of age, you are not required to pay part or full Medicare levy on your spouse's behalf.

Detailed reasoning

As discussed in Question 1, a person may be exempt from paying the Medicare Levy where they meet the definition of a prescribed person.

Where you and all of your dependants are prescribed persons, you will receive a full exemption from paying the Medicare levy.

Application to your circumstances

Once your child reaches twenty-one years of age and is not receiving full time education at a school, college, or university, they are no longer your dependant.

As your child has reached twenty-one years of age and is not engaged in full time education, they are no longer considered to be your dependant. Your other dependant (your spouse) is a prescribed person as a result of having a Veterans' Affairs Repatriation Card (Gold Card).

As all of your dependants meet the criteria for prescribed persons, from when your child turns twenty-one years of age, you are not required to pay the Medicare levy in full or part for your spouse.

Question 3

Summary

From the time your child turns twenty-one years of age, you are not required to pay the Medicare Levy on their behalf as they are no longer your dependant.

Detailed reasoning

As discussed in Question 1 and 2, where a person has a dependent child, they will be required to pay the Medicare levy on behalf of their dependant, provided that their dependant is not in one of the exemption categories and did not have to pay the Medicare Levy.

Application to your circumstances

From the date your child turns twenty-one years of age, they are no longer your dependant for Medicare Levy purposes. Once a dependant turns twenty-one years of age and no longer attends full-time education, their status as your dependant ceases. From that point, you are not required to pay part or full Medicare Levy for your child as you and your spouse are fully exempt, and your child is no longer your dependant.